Wednesday, March 25, 2015

Greek Finance Minister: Why I Gave Germany the Middle Finger Salute

A German television presenter recently broadcast an edited video of me, before I was Greece’s finance minister, giving his country the middle-finger salute. The fallout has shown the potential impact of an alleged gesture, especially in troubled times. Indeed, the kerfuffle sparked by the broadcast would not have happened before the 2008 financial crisis, which exposed the flaws in Europe’s monetary union and turned proud countries against one another.

When, in early 2010, Greece’s government could no longer service its debts to French, German, and Greek banks, I campaigned against its quest for an enormous new loan from Europe’s taxpayers to pay off those debts. I gave three reasons.

First, the new loans did not represent a bailout for Greece so much as a cynical transfer of private losses from the banks’ books onto the shoulders of Greece’s most vulnerable citizens. How many of Europe’s taxpayers, who have footed the bill for these loans, know that more than 90% of the €240 billion ($260 billion) that Greece borrowed went to financial institutions, not to the Greek state or its people?

Second, it was obvious that if Greece already could not repay its existing loans, the austerity conditions on which the “bailouts” were premised would crush Greek nominal incomes, making the national debt even less sustainable. When Greeks could no longer make payments on their mountainous debts, German and other European taxpayers would have to step in again. (Wealthy Greeks, of course, had already shifted their deposits to financial centers like Frankfurt and London.)
Finally, misleading peoples and parliaments by presenting a bank bailout as an act of “solidarity,” while failing to help ordinary Greeks – indeed, setting them up to place an even heavier burden on Germans – was destined to undermine cohesion within the eurozone. Germans turned against Greeks; Greeks turned against Germans; and, as more countries have faced fiscal hardship, Europe has turned against itself.

The fact is that Greece had no right to borrow from German – or any other European – taxpayers at a time when its public debt was unsustainable. Before Greece took any loans, it should have initiated debt restructuring and undergone a partial default on debt owed to its private-sector creditors. But this “radical” argument was largely ignored at the time.

Similarly, European citizens should have demanded that their governments refuse even to consider transferring private losses to them. But they failed to do so, and the transfer was effected soon after.
The result was the largest taxpayer-backed loan in history, provided on the condition that Greece pursue such strict austerity that its citizens have lost one-quarter of their incomes, making it impossible to repay private or public debts. The ensuing – and ongoing – humanitarian crisis has been tragic.